China ... in today's Globe and Mail.Regards, DH
Investors told road to China runs through Canada
By SINCLAIR STEWART
Bank of Montreal has embarked on a novel way of drumming up foreign investment in Canada: marketing the country as a “China play.”
Bill Downe, deputy chairman of BMO, told investors in Switzerland Friday that China's massive appetite for natural resources and energy makes Canada a low-risk vehicle through which investors in other countries can cash in on the surging Chinese economy.
“For years, European investors have been able to use Canada as a North American play, with a separate currency,” Mr. Downe told a gathering of the Canadian-Swiss Association in Zurich. “But now they can also use Canada as a China play, on the strength of China's voracious demands for Canadian commodities.”
China is Canada's second-largest trading partner after the United States, and has purchased $6.5-billion worth of Canadian exports in the first 11 months of 2004, according to BMO's estimates. That figure was just $2.7-billion in 1999, but has been growing steadily alongside China's economic resurgence.
Canada's wealth of forestry, mining, and energy resources — each a crucial ingredient of the growing Chinese industrial juggernaut — makes the country a logical investment alternative for those who are not yet willing to inject capital directly into China, Mr. Downe said.
He pointed out that China consumes 12 per cent of the world's supply of pulp, an industry in which Canada accounts for 22 per cent of global capacity. Canada is home to 60 per cent of the world's mining companies, which can help China locate and develop its base metals. China devoured nearly half of the aluminum, nickel, zinc, and lead sold on international markets last year.
Energy also holds obvious potential.
China's demand for oil, currently running at a clip of 6.4 million barrels a day, continues to increase, and the Canadian oil sands are viewed as a prime and relatively inexpensive source of supply.
“The global reach, the leading expertise, and the resource wealth of Canadian companies are all very attractive features to Chinese business,” Mr. Downe said.
But the Chinese are showing more than mere interest in Canada's natural bounty: They are also emerging as potential investors or acquirers of Canadian companies. China Minmetals Corp., a government-controlled company, was in discussions to buy Toronto-based mining giant Noranda Inc. last year, while several state-owned Chinese energy players have expressed a desire to buy their way into Alberta's oil sands. Enbridge Inc., meanwhile, has proposed a new pipeline that would carry oil from Alberta to the West Coast, and China Petroleum & Chemical Corp., better known as Sinopec, is involved in the discussions.
The International Bank Credit Analyst believes Canada is one of the few compelling investment stories among the world's developed countries, and China is one of the big reasons. Although Canada's publicly traded companies represent a mere sliver of the value of stocks around the world, domestic markets are heavily weighted toward resource sectors, putting the country in a unique position to take advantage of China's commodities needs.
“The rapid industrialization of China, in particular, and Asia more generally, is . . . bullish for Canadian equities,” the IBCA wrote in a report last month, in which it counsels investors to take a strategic overweight stance on Canadian stocks. “Canada should be a major beneficiary of rising Asian oil demand, especially in China, which has already been scouting in Western Canada to secure access to oil reserves.”
One of the challenges for Canada, the IBCA noted, is its overreliance on the United States as a trading partner. About 85 per cent of Canadian exports flow across the border, meaning the country could become vulnerable as the U.S. government attempts to narrow its yawning trade deficit over the next few years.
China offers a partial solution to this problem, but the numbers thus far appear to belie BMO's bullish stance. Canada's share of Chinese imports is just 1.2 per cent, well down from 6.5 per cent in 1982, according to the Asia Pacific Foundation. And while exports to China have been creeping higher in recent years, the growth is “clearly not enough,” Canada's international trade minister Jim Peterson warned earlier this month as he kicked off a trade mission to China.
More than 375 delegates representing 280 Canadian companies and government agencies wrapped up visits to Shanghai, Hong Kong, Beijing, and other cities last week, an effort geared toward reinvigorating commercial ties between the two countries.
Canadian companies signed more than 100 agreements with Chinese companies, while the two governments hammered out pacts on several sectors, including natural resources, technology, and agriculture, designed to foster co-operation and kick-start commercial opportunities.
Mr. Peterson has been a vocal proponent of the need for improved trade and investment relations, warning that Canadian companies cannot afford to miss out on opportunities in an economy that could surpass that of the United States within decades.
“With China redefining global trade, a China business plan is no longer an option for Canadian companies; it's a must,” Mr. Peterson said in a recent speech.
“Canadian companies and their government see that the train is leaving the station and they want to catch it. If we don't, someone else will.”